I move:
That Dáil Éireann approves the following order in draft——
Gas Act, 1976 (Section 9) (Establishment of Subsidiaries) Order, 1990
copies of which Order in draft were laid before Dáil Éireann on 15th June, 1990.
Copies of the order have been placed before both Houses of the Oireachtas.
The purpose of this order is to confer on Bord Gáis Éireann powers, duties, rights and obligations in relation to the establishment of subsidiary companies so that it can conduct its business through the most appropriate corporate structures and, where necessary, enter into joint ventures with other bodies.
Since natural gas was first brought ashore in 1978 it has rapidly become a crucial element in our fuel mix. Natural gas currently accounts for about 14 per cent of our primary energy requirement and the resulting saving to date on our imported fuel bill is in the region of £2 billion. This is no small achievement in an economy the size of ours.
Bord Gáis Éireann were established under the Gas Act, 1976, with powers and functions related to the transmission of gas and the development on a commercial basis and maintenance of the natural gas supply grid. The gradual involvement of the board in the gas utilities in Cork, Limerick and Clonmel in the eighties and, finally, the acquisition of the assets of the Dublin Gas Company, which included the Waterford Gas Company, has meant that the board's role is now an expanded one, indeed a greatly expanded on, which has projected them into the difficult commercial areas of urban gas distribution.
New legislation to cater for these changed circumstances was enacted in 1987 and a number of orders were enacted subsequently. Bord Gáis have functioned very well in their new environment and have made a very successful transition. It is fair to say that the image of the gas distribution industry in the towns and cities where gas is available is now greatly improved.
The benefits which accrue from the use of natural gas have gone not only to those fortunate enough to be within the range of a gas supply, but to the nation as a whole, in the form of dividend payments by Bord Gáis Éireann to the State. The Exchequer has benefited from this source to the tune of £260 million to date. A further payment is expected this year. On a cautionary note, however, I might say that the board's capital expenditure programme for the coming years may require a review of dividend payments in the medium term. I will elaborate on this capital expenditure later.
In addition to the direct payments to the Exchequer, natural gas has had a significant effect on many sectors of the economy. In 1990, 45 per cent of all gas produced went to electricity generation. With modern advances in combustion technology such use of gas has recently come to be recognised internationally as being economically efficient and environmentally beneficial. Indeed, the European Community has lately revoked the Directive which banned the use of natural gas in power stations.
Continued use of gas-fired power stations will be an essential element in helping us to meet out international environmental commitments, notably in regard to reduction of sulphur and nitrous oxide emissions under the Helsinki Accord and the Sofia Protocol. In addition, it helps us to reduce our dependence on imported oil, which is the alternative fuel available to the Electricity Supply Board.
Many customers in industry have learned to appreciate how important gas can be as an energy source. The cleanliness, versatility, efficiency and competitiveness of this indigenous resource has meant that it has to a great extent replaced other fuels in the area of the existing grid and is now the dominant fuel for industry in the gas supply area. In the foreseeable future the main growth market for gas in this area will be the small commercial sector, which in 1990 alone increased volume sales by 15 per cent and looks set to develop rapidly over the next few years.
In the domestic sector sales are consistently increasing. In 1990 alone the volume of gas sold increased by 40 per cent over the previous year. Twenty-one thousand new central heating customers were connected up in 1990. In percentage terms this represented an increase of approximately 43 per cent on the number for the previous year. Sales of cookers and fires exceeded 29,000 in the same year. These developments owe their success to the board's initiatives in marketing. The establishment of the concept of "Warm Home Centres" is one such initiative which has been very successful, as have the board's other promotional campaigns and incentives.
The ban on the sale and distribution of bituminous coal in Dublin from 1 September 1990 has presented Bord Gáis with both a golden opportunity and a challenge. The opportunity to greatly increase gas sales to fill the vacuum left by coal is clearly apparent. There are approximately 350 non-gas estates in the Dublin area. When one includes the houses within the present gas network area which are not connected to the grid there are about 100,000 houses in Dublin which do not have a gas supply. The demand for connection to the grid is enormous. The challenge for the board is to satisfy that demand in as far as they can, efficiently, in a cost effective manner and working to a realistic timescale.
A start has been made. The board have drawn up a register of non-gas estates. A pilot project has been undertaken in two Dublin estates to assess the likely take up for gas and the return on the board's investment. The project has shown positive, but marginal, results. On the basis of this pilot project, and subject to take up, the board are proposing to extend supply to an additional 8,000 homes in hitherto non-gas estates throughout the country in 1991. Some 32 estates in the Dublin area involving about 6,000 houses will be approached.
A programme of this scale cannot be completed overnight and will cost a lot of money to implement. Extension to individual non-gas estates will naturally depend on the level of uptake in each case. Bord Gáis Éireann have a statutory responsibility to earn a reasonable return on their capital investment and must therefore assess all extensions on a commercial basis. Accordingly, the board will survey each of the estates involved to check out the prospective level of take up for gas and only those estates which are identified as being able to provide a satisfactory return on the board's expenditure will be considered for connection.
In addition to the Dublin estates, Bord Gáis, this year also intend to offer a gas supply to some 1,700 homes in hitherto non-gas estates in Cork and to 400 in Limerick. Similar viability criteria and incentives will apply in these centres as in Dublin.
The programme for future years will depend on the funds available to the board and to a great extent will be dependent on the success of this year's projects and the lessons learned by Bord Gáis Éireann in carrying them out. Nevertheless, it would be my intention that all viable estates in the gas supply area would be connected within five years.
In short, it can be said that because of all its benefits — environmentally friendly, efficient, reliable, economical, versatile — natural gas is widely perceived as the fuel of the future. It is my purpose and that of my Department to ensure that the body charged with developing and maintaining the gas industry are enabled to do so properly.
The natural gas industry, apart from its impact in other sectors is an important industry in itself. Bord Gáis currently employ over 900 people directly and a great many others are employed by associated companies such as the warm home centres and the gas contractors. Bord Gáis Éireann expect to announce a turnover in the region of £160 million on operations during 1990 in their annual report and accounts for the year, which are due to be laid before the Oireachtas and published shortly.
Capital expenditure by Bord Gáis Éireann in 1990 was approximately £22 million. Extension of the grid and replacement of mains and services in Dublin cost £15 million. The remainder was spent in extending and enhancing the networks in Cork, Limerick, Clonmel and connecting customers in Drogheda, Dundalk and Waterford. Grant assistance of about £900,000 is recoupable from the European Regional Development Fund in respect of the expenditure incurred.
From the commercial aspect the various gas utilities, which prior to the board's intervention were in very serious financial difficulties, are now far stronger financially than they were before the involvement of Bord Gáis Éireann. They are not yet in a break-even situation because of the necessity to finance the substantial marketing campaign being undertaken in the domestic sector. The increased level of gas sales in this sector indicates that the board's campaign is having the desired effect and that the utilities should begin to trade profitably and move into the black in the not too distant future.
Any modern gas utility, if it is to operate successfully and retain the confidence of its customers, must have a satisfactory safety record and must implement the most up-to-date safety standards and practices. The networks inherited by Bord Gáis Éireann when they acquired the old "town gas" utilities were old and in many instances in bad repair. The Dublin network alone comprises some 2,600 km of pipe. The board have set about modernising and replacing much of the distribution grid.
The Government, conscious of the need for independent investigation of serious incidents, appointed international engineering consultants to investigate the Raglan House explosion in 1987. The terms of reference asked for recommendations on how incidents such as the Raglan House explosion might be avoided in the future. There were 38 recommendations in all. Bord Gáis Éireann have implemented the recommendations of the report in relation to Dublin Gas and an annual pipe replacement plan now in force for mains and services will ensure that the network is maintained to the highest standards.
A further three safety audits were carried out in respect of Dublin Gas, including the report of the task force, under the aegis of the Minister for the Environment, on the network and operating procedures relating particularly to multistorey buildings.
Emanating from these four reports were 123 recommendations referring to Dublin Gas. The systematic implementation of all these recommendations was set as a high priority by the Department of Energy and has been closely monitored by the Department with the result that all the short-term recommendations included in the reports have been carried through. Most of the longer term technical improvements have been completed. Progress on the remaining elements is on target and is being monitored.
A number of technical audits have been carried out by independent experts since the takeover of the southern utilities by Bord Gáis Éireann. These have verified that the system is being operated safely and to current international standards.
My Department have set up a detailed regulatory framework for monitoring safety practices in all of the gas utilities. As Minister for Energy, I am empowered to require Bord Gáis Éireann to submit detailed reports on safety matters, including the condition of the gas network, maintenance and renewal programme and leak records. Detailed procedures have been put in place regarding the reporting of gas incidents. There is also provision for the appointment of an independent investigator to examine safety practices and for my Department to require adherence to specified codes of practice.
The Dutch VEG Gasinsituut was commissioned by BGE to carry out a further review of all safety improvements in the organisation over the last two years. The final report indicated general satisfaction that the safety related policies, systems and practices in Bord Gáis conform to the best international standards.
The safe transmission and distribution of natural gas, and indeed the safe installation of appliances and heating systems, depend on a high degree of skill and expertise. The board's in-house training programmes and its involvement in training courses with FÁS have made a significant contribution to ensuring that skilled staff are involved in all aspects of the gas industry, particularly in the domestic and commercial installation business.
Another factor which helps to ensure the highest standards of safety and quality of workmanship in the industry is the panel of approved installers which is operated by the board. The qualifications for admission of contractors to this panel are rigorous and the performance of those companies or individuals who are accepted is constantly monitored by the board's quality control department.
The progress made by BGE in the area of safety in the last few years has been significant. Publicly reported escapes of gas have been greatly reduced and unaccounted for gas is now below the internationally accepted norm. We cannot afford to become complacent, however. Constant vigilance is necessary both on the part of the board itself and my Department in their monitoring role.
Over £50 million is being provided for BGE's 1991 capital expenditure programme, the principal elements of which involve spending on the Ireland-UK gas interconnector, the continuing upgrading and expansion of the gas utilities distribution systems and development of new business.
A major capital project being undertaken this year as part of that capital programme is the extension of the gas grid westwards from Skibbolmore, County Louth, on the Dublin-Dundalk line to Mullagh in County Cavan. The pipeline will run through Ardee, where it will serve a number of commercial customers, with spur lines to serve industrial customers in Virginia and Bailieborough. The project is based on a limited number of specific industrial and commercial customers, with whom Bord Gáis Éireann have held discussions and who have agreed to take gas when the pipeline is built. The possibility of supplying domestic users will be considered if and when viable markets can be identified in the areas concerned.
The project, which is estimated to cost just over £10 million, has recently been approved by the European Commission for funding from its special Border areas programme. It is scheduled to commence shortly and should be completed early next year.
Overall the success of Bord Gáis in transforming the gas industry has made it imperative that we secure the future of that industry. We now recognise more than ever the important role gas can play in providing clean and efficient energy. This role is expected to expand as we face into the next century. However, our currently identified reserves of natural gas are finite and are expected to run out shortly after the turn of the century. With this in mind I have made it a priority since taking office to examine the options open to us with a view to securing long-term gas supplies.
An important aspect of ensuring future supplies is the drilling programme agreed with Marathon Petroleum Ireland in 1988, which is currently under way. The object of the agreement was to facilitate the further exploration of the 37 blocks off the south and south-east coasts of Ireland which are held by Marathon with a view to finding additional deposits to improve Ireland's security of supply. As the Members of the House will be aware, the Kinsale Head gas field is our sole supply of natural gas at present and supplies from these fields will begin to taper off towards the end of the century.
One positive result of the Marathon drilling programme was the discovery in March 1989 of the Ballycotton field, which, although of modest proportions, augurs well for future projects in the Celtic Sea and other areas where, hopefully, additional indigenous reserves will be identified and developed. The Ballycotton gas field is located some ten miles north west of the Kinsale Head gas field with estimated reserves of about 70 BCF. This is approximately one-twentieth the size of the Kinsale Head gas field.
A gas sales agreement in respect of this latest find has been concluded between Marathon and BGE and on 27 March 1990 I announced my approval of a plan of development submitted by Marathon for the field. First deliveries of gas from the field are expected in July this year. It will be linked with the Kinsale Head field and its reserves will be depleted about the same time as those of the latter field.
While the discovery of the Ballycotton gas field indicates that further indigenous reserves may be indentified in our offshore, nevertheless, we must, be pragmatic.
In late 1989 the Government decided that the options for gas importation should be examined. My Department and Bord Gáis carried out a feasibility study of the main options and decided that the best solution would be a subsea interconnector pipeline to the UK. In addition to linking us to the UK gas grid and North Sea supplies, an interconnector would give us the benefit of a link to the greater European grid in due course and the opportunity to export any gas that would be surplus to our needs in the event of a significant indigenous gas find.
Planning for this gas interconnector is now at an advanced stage. There are various aspects to the project, including the necessary statutory clearances here and in the UK, and environmental impact studies, which are scheduled for execution at different times throughout the period up to the target completion date in October 1993 when first deliveries are expected.
Subsea surveys of a number of possible pipeline routes have been carried out. The planned route runs from north county Dublin to Moffat in southern Scotland. This route allows for the possibility of a link to Northern Ireland and my Department have maintained close contact with the Northern Ireland authorities in this matter. We are anxious, in the spirit of North-South co-operation, to facilitate them in any way we can. However, no final decision has yet been taken on the Northern side.
Negotiations for a supply of gas are ongoing and engineering design is now well under way. I expect to put the project before the Government for final approval soon so that the major procurement and construction contracts can be placed. Construction should commence in March 1993. Preliminary estimates are that the cost of the project will be about £240 million at current prices.
There are four main elements to the project. These are onshore pipelines in Scotland and Ireland, the subsea pipeline and a compressor station in Scotland. The project has been chosen by the European Commission for support through its REGEN initiative under which £300 million have been allocated to assist five energy related projects in the Community. A formal application to Brussels for assistance has been made, but the amount of the allocation to the Irish project will not be known for some time.
It is the Government's intention that the pipeline will effectively be owned and operated by Bord Gáis Eireann. Initial imports are intended for electricity generation but, as indigenous reserves are depleted, increasing amounts will go to Bord Gáis Eireann's other markets. The participation of the ESB will be vital to the success of the project and for that reason the ESB have been involved in the gas supply negotiations.
Indeed, the possibility of a joint venture arrangement between Bord Gáis Éireann and some other suitable partner on one or more aspects of the project in the future has been raised and could be worthy of serious consideration, if a suitable proposal were to emerge.
It may be advantageous, or even necessary, for Bord Gáis to handle their involvement in the interconnector project by way of a subsidiary company. Indeed, Bord Gáis Éireann may consider it prudent to set up subsidiaries to deal with the ownership and operation of the pipeline itself even if no joint venture partner is involved.
Even with an interconnector pipeline in place, linking us to a complete European market for gas, in the event that no significant new finds of gas emerge before the Kinsale Head field is depleted, Bord Gáis Éireann will still need to make provision for security of supply since there will then be only one source — imported gas — and for meeting peak demand. It is envisaged therefore that more capital expenditure will be required in the latter half of this decade for construction of either a gas liquefaction plant or a terminal for imports of liquified natural gas (LNG). Much of the business of energy production, transmission and distribution worldwide is carried out by co-operation between interested parties. This will be another area where a joint venture might prove to be suitable.
Accordingly, I am anxious that the way should be cleared now to enable Bord Gáis Éireann to act in the appropriate way should the occasion arise where there is a need for a subsidiary company.
Bord Gáis Éireann's existing legislation does not address in any clear way the question of the board's entitlement to establish subsidiary companies or enter into joint venture arrangements. In effect, the board already have four subsidiaries in the gas utility companies which they have acquired i.e. Cork, Limerick, Waterford and Clonmel Gas Companies. Dublin Gas is, as I have said, an integral part of Bord Gáis Éireann. I feel it is now necessary to remove any doubt there might be regarding Bord Gáis Éireann's ability in this area, in order to pave the way for any future ventures which the board may wish to be involved, particularly at this time, in connection with the proposed interconnector project. The making of this Order will confer on Bord Gáis Éireann the power to set up or participate in companies, to form subsidiaries, and to enter into joint venture arrangements. In giving these powers to the board, however, I think it appropriate to address the question of accountability and control in connection with the functions conferred on the board under the order. Accordingly, I am including a provision that my approval and that of the Minister for Finance will be required before the board can exercise any of their powers under the order.
Similar provisions to these are included in section 2 of the Electricity (Supply) (Amendment) Act, 1988, and in section 2 of the Turf Development Act, 1990, for the exercise of similar functions by the ESB and Bord na Móna, respectively.
I am adopting this procedure because I feel it to be the most appropriate and expedient way of conferring the additional functions I have described on Bord Gáis Éireann and of ensuring the appropriate control.
Section 9 of the Gas Act, 1976, provides for the making of an order to confer on the board such functions, in relation to the provision of a supply of gas, as the Minister thinks proper. Functions can include, in this instance, powers and duties. Such an order must be laid in draft before the Houses of the Oireachtas, and requires the approval of both Houses of the Oireachtas before it can be made by me. The approval of the Seanad has already been obtained.
I therefore recommend this motion to the House.
